The Funny Money Game Our Government is Playing

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First, you need to understand a couple of terms; Currency Velocity and Weimar Republic.

Currency Velocity is the measure of how long it takes for money to move from the printing press at the Treasury department back to the shredders at the Treasure Department, assuming each bill is used only once.  So a dollar made yesterday that gets back to the Fed tomorrow has a velocity of 3 days. This is a very simple explanation, so if you have an economics background, please excuse me.

The Weimar Republic was Germany from 1919 to 1932.  Immediately following a loss in WWI, Germany was highly in debt.  In an effort to shore up their economy, they decided to stop the money from moving through the complete cycle of velocity, and instead give it to banks, who would take the individual bills and buy German Bonds.  This inflated the German Mark, so it took fewer of them to pay off debts. However, this action caused hyper-inflation and led to the popular election of Adolph Hitler.

OK, History lesson over.  What does this have to do with the price of gasoline here?  Well, a lot actually, but that’s another lesson.  This article is about the game our government is playing with our money.

In 2008, the housing bubble, which had been perpetrated by quasi-governmental agencies, named Fanny Mae, Freddie Mac and their siblings, burst.  Insurance companies and banks that had mortgage assets went into shock and bankruptcy.  The way our government reacted was to stop the currency velocity circle.  First, new federal regulation going by the name of “Dodd-Frank” told the banks they needed to have much higher reserve funds on hand.  Knowing that the banks didn’t have that kind of money on hand, the Federal Reserve began to loan the banks money at 0%.  Now the banks could get the required reserve funds.

Now that the banks had ample reserves, they should have begun to loan that money to you and I, but instead, were required to buy U.S. Treasury Notes  – just to ensure their reserve funds of course.  So now, you had the government giving to the banks, and the banks giving back to the government.  This was called “Quantitative Easing” or QE 1, QE 2 and QE 3 because they did this 3 times. 

The result of this is a big ZERO in measuring the currency velocity. In Germany, this led to hyper-inflation.  You’ve probably seen the pictures of people carting wheelbarrows full of money to buy a loaf of bread.  That’s historical fact, and we’re facing the same thing.  Today, Greece, who did this a couple of years before we did, announced that they have to pay over 10,000% to get investors to buy Greek Bonds (loan money to Greece).

Yet our President and Federal Reserve Chairman claim that nothing is wrong and that there is no inflation in the foreseeable future.  Have you gone grocery shopping lately?  I’ll bet your prices have gone down right? Stayed the same as last year? Yet there’s no inflation in sight? Right.

Germany did it and it led to Hyper-inflation and Hitler. Greece did it and it’s led so far to riots in the streets. We’re still doing it.  I wonder where it will lead us.  If you’re an ostrich, you won’t care. Let our kids and grandkids pay our debts, we’ll be dead anyway.

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